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June’s labor report has added to the “unusual uncertainty” environment facing the markets.  The report was the inverse of May’s broad based unexpected weakness…unexpected broad based strength.

The economy added an impressive 287k non-farm payroll jobs in June, beating the 180k expected gain.  This was the largest monthly increase since October 2015 (295k).  May’s NFP was revised to 38,000 from 11,000.

Private sector jobs rose by a remarkable 265,000 in June following a revised 6,000 decline in May.

The unemployment rate did rise to 4.9% from May’s 4.7% level but this is the result of more people reentering the workforce.  The labor participation rate (LPR) rose to 62.7% from last month’s 62.6%.  The LPR had a sharp two month decline of 0.4%.

Wages did rise by only by 0.1% bringing the year on year increase to 2.6%.

In view this was the proverbial “goldilocks” report for equity investors.  The data was strong enough to underpin more comforting growth expectations but not too hot to change immediate monetary policy expectations.

Speaking of which, the odds of a September rate hike are again rising.  To remind all, a July rate hike was all but assured until May’s poor labor report and the Brexit vote.  A week ago, the market thought an increase will not occur until 2018.  Wow!  Talk about “unusual uncertainty” with some pontificating about a lack of confidence in the Federal Reserve.

But if there is a lack of confidence in the Fed, why are real bond yields negative by almost 100 basis points, a negative real yield that rose Friday as Treasuries continued their relentless climb higher in price?  Can I remotely suggest there is no confidence in government vs. the Federal Reserve?  Absolutely.

As noted equities rallied handsomely on Friday, an advance I believed was entirely algorithmic in nature.  All must remember, in today’s environment prices could fall as quickly as they had advanced.

What will happen this week?  It is the commencement of second quarter earnings season.  Expectations are low.  There is little on the economic calendar until later in the week with the release of the Beige Book, several inflation indices, retail sales, a confidence survey and manufacturing data.

Last night the foreign markets were up.  London was up 0.89%, Paris up 1.46% and Frankfurt up 1.61%.  China was down 0.56%, Japan up 3.98% and Hang Sang up 1.54%.

The Dow should open moderately higher on economic growth optimism.  The 10-year is off 9/32 to yield 1.39%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.